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WACC (Weighted Average Cost of Capital) is the blended rate a company is expected to pay to finance its assets, weighting the cost of equity and the after-tax cost of debt by how much of each the company actually uses. It's a core input for company valuation and investment decision-making.
How it works
Enter the market value of equity, the market value of debt, the cost of equity (%), the cost of debt (%), and the tax rate (%). The calculator finds the equity and debt weights (each divided by total capital), applies the tax shield to the cost of debt, and combines them into WACC = (E/V × Re) + (D/V × Rd × (1−Tc)).
- Enter market value of equity (E).
- Enter market value of debt (D).
- Enter cost of equity (Re) (%).
- Enter cost of debt (Rd) (%).
- Enter corporate tax rate (Tc) (%).
- Click Calculate to see your results.
Examples
A simple two-source capital structure
A company with $600,000 of equity at a 12% cost of equity and $400,000 of debt at a 6% cost of debt, taxed at 25%, has a WACC of exactly 9% — the equity and debt weights are 60% and 40%, and the after-tax cost of debt is 4.5%.
Who should use it
- Discounted cash flow (DCF) company valuation.
- Comparing a potential investment's expected return against the company's cost of capital.
Industry applications
- Corporate finance and valuation
- Investment analysis and capital budgeting
Advantages
- Combines both financing sources into a single, comparable blended rate.
- Widely used, standard input for valuation and capital-budgeting decisions.
Limitations
- Sensitive to the accuracy of its inputs (especially cost of equity, which itself usually relies on an estimate like CAPM).
Common mistakes to avoid
- Forgetting to apply the tax shield to the cost of debt, which overstates WACC.
- Using book values instead of market values for equity and debt — WACC is meant to reflect current market-based costs of financing.
Best practices
- Use market values (not book/accounting values) for equity and debt whenever they're available.
- Revisit WACC periodically, since market interest rates, stock price, and the company's own capital mix all change over time.
Tips
- Pair this with the CAPM Calculator to estimate a defensible cost of equity input, rather than guessing a number.